Bill Cara's Blog for Feb 10, 2011 [See Post-Close report]

Good morning.

New FED POMO Schedule To Be Released At 2:00 pm EST.

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8:30 - Initial/Continuing Claims
10:00 - Wholesale Inventories
14:00 - Treasury Budget

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Cara 100 Earnings: ECA (.09 vs .13)

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APA - Apache coverage resumed with an Overweight at JP Morgan. Target $139

CSCO - Cisco downgraded to Hold from Buy at Citigroup citing increased competition and margin pressures. Price target lowered to $22 from $25.

CSCO - Cisco downgraded to Neutral from Overweight at Piper Jaffray following the company's Q2 results and lowered its target price for shares to $21 from $25. Piper believes the quarter produced more questions than answers and that Cisco is losing market in two significant product categories: switching and routers.

WFMI - Whole Foods upgraded to Hold from Sell at Hapoalim and said there were no negative catalysts on the horizon.

WMT - Wal-Mart downgraded to Neutral from Buy at UBS who believes Wal-Mart could report negative Q4 comps and higher inventories given the difficult economy, weather and lack of traction in strategic initiatives. Price target lowered to $60 from $61.

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"When one person suffers from a delusion it is called insanity; when many people suffer from a delusion it is called religion."
- Robert Pirsig

Well, whatdayano, part of one of my 2011 4casts actually happened:

"Bill will tire of his Nasdaq committment and come back to the blog...it's been great reading his comments this week."

Wonder what the markets will look like when it's "One World Exchange"? Rumours are NYSE will be acquired by Euroland, with Germany in the drivers seat. International accounting standards adopted and all. More fair? We'll see.

This morning's report is great stuff!

"Given core inflation in food and energy, which Bernanke likes to ignore, that stagflation outlook is looking more realistic, at least for the UK."

I watched Mr. Bernanke's appearance before the budget committe yesterday. He attributed the rise in food & energy prices to demand from the growth economies(formerly known as emerging markets). Absolutely denied QE program has had anything to do with it & will not contribute to inflation because he will take away the cookie jar at the appropriate time.

I also heard him say the Fed cannot and will not bail out the states due to lack of funds. Hmmm...

In Texas, there is discussion of severe budget cuts to education. Many smaller independent school districts are in distress and will find 2011 a challenge to say the least. Colleges are being asked to put a cap on a a four year degree plan at $10K total(tuition/books). Good luck with that.

We definitely live in interesting times.

Nasquack's loss is our gain.

I have saved today's CTA Trading Desk Morning Report in my scrapbook which I started in 2008 when I realised something was desperately wrong.

Les,

Net borrowing as a percentage of GDP has been rising since just after the millennium and that was during the good times. Now we're somehow supposed to believe that a new age of austerity is miraculously going to turn things around. Welcome to the Panglossian world of government finance.

ATVI - PT Lowered from $16 to $14 @ RBC. Outperform

CSCO - Cisco downgraded to Market Perform from Outperform at Avondale.

CSCO - Cisco downgraded to Hold from Buy at Stifel Nicolaus citing margin pressures and structural changes in the industry.

CSCO - numbers reduced at Goldman. Shares of CSCO now seen reaching $21, according to Goldman Sachs. Estimates also cut, as the company is realizing lower margins. Neutral rating.

http://dealbook.nytimes.com/2011/02/09/nyse-eurone...

I found Jesse's response to the merger talks the most appropriate:

"One ring to rule them all"...

4ever,

"Wonder what the markets will look like when it's "One World Exchange"? Rumours are NYSE will be acquired by Euroland, with Germany in the drivers seat. International accounting standards adopted and all. More fair? We'll see."

Probably just go from our current FASB (Fantasy Accounting Standards Board) to One World Exchange or "OWE" or the short form: "OW"!

"This morning's report is great stuff!"

Yes.

Didn't know he was interested, but he has my vote if he decides to wade in.

amidst rumours of resignation..says bloomberg.

That's a 5% hit on a position opened on (presumably) panic selling last night! As wpepper reminded us yesterday- try to avoid passing on the blind side.

btw- Had I not made a total withdrawal of my 'time deposit' yesterday morning? I'd be looking at a -6% hit on the total portfolio, and 'Desolation Row' would be playing in the background. Life is good, and not necessarily due to any 'discipline' on my part. What does Harrison like to say- 'Not always right, but always honest.'

and to hand POWER to the Millitary...

Night in Egypt is a couple hrs away.

Those Egyptians sure have the conviction to fight against their oppression.
A massive protest is scheduled for tomorrow Feb 11, 2011, Mubarak just can't out last these peaceful protesters in hopes they will go away and he will retain his dictatorship. In less then 12 hours... history, whether it be good bad or ugly, will transpire in Egypt. 30% unemployment is a catalyst for revolt on any government!

could lead market higher - if there is indeed easing of tensions. either way i think it means a military-led government for now. Crude seems uncertain how to see it, but i wouldn't be surprised to see another leg down near term, when things become clearer later tonight.

Bill:

Your comments on your activity regarding ASYS were very informative.

At one point you stated of the market trading conditions:

"ASYS opened at $30.43, then traded up to $30.80 before falling below $30, at which point I sold. Then, basically on 100 share trades, the market was taken higher so that more shares could be dumped at higher prices. The close was $26.66, a loss of -7.9% on the day. "

I would suggest that ASYS going higher after you sold your stock at the market was not necessarily manipulative as your text suggests.

There is no question that OTC market makers will fade on their quotes if they can. Many quotes are in there because they have to have a quote in there.

The "real market" for some size when you entered your order may have been 29.50 at 30.50, and whatever was bid or ask in between may not have been much.

The point is that you got out of your stock at the time you wanted to get out of it, and that was the available real liquidity (in a fairly thin stock to begin with.

A market maker, or a hedge fund trader, or a day trader for that matter will take into consideration whether there is a buyer or seller working. This is why you will see a 100 share bid or offer on an electronic market, and then sales keep stringing at 100 shares, until it stops, and the price takes off, and you might a larger block trade on another exchange (signaling the clean-up of that particular order).

The fact that you had to discount your price to sell your stock indicated a thin market, and the fact that the price migrated higher for a while on thin volume indicated a thin market. And your persistence in sticking to your game plan was evidenced by what the stock did the rest of the day.

But manipulation to the minute extent of 100 share trades to drive the price up may not have been an accurate explanation.

Your other comment regarding ASYS and market conditions was on target -

"what happened next to ASYS shows just how fickle and unstable the market can be."

Mark H -

"Portugal 30bp wider at 460bp, a notable underperformer this morning. Rumours that ECB may be entering the fray on the cash side."

I like to watch the spread between Portugal and German 10-year bunds which just went to 4.02% indicating trouble is coming and will have certainly arrived at 4.25%. Time to monetize the euro again and swing the trillion daily currency flows back into the Swissy.

Holding FXF as it gets slammed today.

Mark - I reckon £85 before $90 - Cushing's awash...gas stockpiles at 20 year high..Egypt propped up WTI last week - but if the Suez worries prove unfounded...i think WTI goes lower. Good luck!

I went ahead and repurchased my calls that stopped out a few days ago.

Edit: wrong move. will likely stop out again.

This is the third time in the past year that CSCO has gapped down after earnings. As Dubya once said, "There's an old saying in Tennessee. I know it's in Texas, probably in Tennessee, that says: "Fool me once... " [pause] "... shame on... " [pause] "Shame on you... " [pause] "If fooled, you can't get fooled again."

Well, you get the gist. FD - I had a small position I opened a couple months ago at 20.41 and got stopped out this morning at 19.52. Debated selling late yesterday at 22 but decided to hold. Lesson learned - if in doubt, take the profit {slap}; you can't get hurt taking a profit {slap}; Will never touch this dog again {slap}.

French Finance Minister Christine Lagarde said Thursday she is "dumbfounded" at the prospect of the Deutsche Bundesbank President Axel Weber not being a candidate to be the next head of the European Central Bank.

"What a surprise," Lagarde said as she left an event at the finance ministry.

Based on CSCO's market performance after its last few "oopsies", price should skid for a few days before reaching some sort of bottom. Looking at its chart, if 19 support fails, the next stopping point might be 18. During its recent moves down, it seems to find support on the big numbers, 19 being the most recent.

Looking at the company, its got $7 per share in cash (trading at 19.07), and it regularly makes about $1.50 per year. Call it an effective P/E of about 10. Seems like value there, but I'm going to wait until some other buyers appear before jumping in.

Woodshedding on earnings "disappoint" by the do nothing shills amounts to a rolling correction of 20%. Be wary!

Anything that involves moving bits around, CSCO has its grubby little fingers in, from the massive routers that run the internet to your wireless hub you buy from "linksys" (a CSCO company) for $59. But its not just hardware, its software too.

If it involves data moving around a network, and they don't have the technology, they go out and buy a company that does it. There are a number of stories I have heard where a CSCO employee quits the company, starts up a new business, gets some number of customers, only to be bought up by CSCO - making a killing in the process.

This avoids the whole risk and politics of inside-the-company entrepreneuring; CSCO seems to encourage this sort of thing. A number of folks I know would talk about being acquired by CSCO as a likely exit strategy. (And a number of my friends ended up working for CSCO in exactly that way).

I don't have any recent information from inside - its all at least 5 years old. But I doubt their way of doing business has changed, since the guy at the top remains the same.

Yes, here's a webpage from CSCO describing who they acquired, and when. Most of the companies you won't know; some you might. Scientific-Atlanta (TV set top boxes) and Linksys are two. They tend to buy companies much smaller than they are, which greatly facilitates integration.

http://www.cisco.com/web/about/doing_business/corp...

Well folks, I'm taking the other side of this trade. Last night I placed an opening order at 19.51 when AH trading took CSCO down to 19.76. Subsequent orders filled at 19.11 and 19.04 give me comfortable position despite being underwater as I write. CSCO has more cash on hand than any other tech - over $40 billion, and they are expected to be buying a large server manufacturer to further their diversification into cloud computing. Owning the server maker as well as the server farms makes sense to me. I am also waiting on pending news about their new tablet which they will be selling into their established client base for business applications tied to mobile and cloud initiatives. I believe they are re-inventing themselves a la IBM and AAPL. Forget the stop loss orders. As the price gets into the 18's it will definitely time for me to back up the truck! Time will tell.

it's funny that the Headlines are using EGYPT news that Mubarak is about to step down as news catalyst for stocks recovery from this morning Sell off translated as GOOD news while in fact it should be completely the opposite if you believe in Common Sense ;).

Guys, If MUBARAK goes down, all the rest of the Middle East people are listening and watching carefully and following the events unfolding. They will all follow suit protesting peacefully to remove their dictators as well from Gov't, office, It’s a domino effect guys, only a matter of time for the rest of Dictators to fall so who is going to be NEXT, would it be Jordan, Libya, Yemen, …etc ?? no body knows yet only guessing.

What do you think will happen to the World Markets in the next days or weeks, or months to come, you figure it out.. Good Luck staying Perma Bullish with the POMO energizer bunny keeps going and going and going..

But then again, market doesn’t trade on common sense as I found out does it? 

http://finance.yahoo.com/news/Mubarak-resignation-...

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OPERATION DATE1
SETTLEMENT DATE
OPERATION TYPE2
MATURITY
RANGE
EXPECTED PURCHASE SIZE

February 11, 2011
February 14, 2011
Outright Treasury Coupon Purchase
08/15/2016 – 01/31/2018
$6 – $8 billion

February 14, 2011
February 15, 2011
Outright TIPS Purchase
04/15/2013 – 02/15/2040
$1 – $2 billion

February 15, 2011
February 16, 2011
Outright Treasury Coupon Purchase
02/28/2015 – 08/15/2016
$5 – $7 billion

February 16, 2011
February 17, 2011
Outright Treasury Coupon Purchase
05/15/2021 – 11/15/2027
$1.5 – $2.5 billion

February 17, 2011
February 18, 2011
Outright Treasury Coupon Purchase
05/15/2018 – 02/15/2021
$6 – $8 billion

February 18, 2011
February 22, 2011
Outright Treasury Coupon Purchase
08/31/2013 – 02/15/2015
$5 – $7 billion

February 22, 2011
February 23, 2011
Outright Treasury Coupon Purchase
08/31/2016 – 02/15/2018
$6 – $8 billion

February 23, 2011
February 24, 2011
Outright Treasury Coupon Purchase
08/15/2028 – 02/15/2041
$1.5 – $2.5 billion

February 24, 2011
February 25, 2011
Outright Treasury Coupon Purchase
08/31/2012 – 08/15/2013
$4 – $6 billion

February 25, 2011
February 28, 2011
Outright Treasury Coupon Purchase
05/15/2018 – 02/15/2021
$6 – $8 billion

February 28, 2011
March 1, 2011
Outright Treasury Coupon Purchase
08/31/2013 – 02/15/2015
$5 – $7 billion

March 1, 2011
March 2, 2011
Outright Treasury Coupon Purchase
08/15/2028 – 02/15/2041
$1.5 – $2.5 billion

March 2, 2011
March 3, 2011
Outright Treasury Coupon Purchase
03/31/2015 – 08/31/2016
$5 – $7 billion

March 3, 2011
March 4, 2011
Outright Treasury Coupon Purchase
05/15/2018 – 02/15/2021
$6 – $8 billion

March 4, 2011
March 7, 2011
Outright TIPS Purchase
04/15/2013 – 02/15/2041
$1 – $2 billion

March 7, 2011
March 8, 2011
Outright Treasury Coupon Purchase
09/15/2013 – 02/28/2015
$5 – $7 billion

March 8, 2011
March 9, 2011
Outright Treasury Coupon Purchase
09/30/2016 – 02/28/2018
$6 – $8 billion

March 9, 2011
March 10, 2011
Outright Treasury Coupon Purchase
03/31/2015 – 08/31/2016
$5 – $7 billion

My better half (who has a much longer time horizon than I) is scaling into CSCO. Should prices continue to drop, I'll be doing the same for the 9-year-old's account.

Playing with some Fibonnaci Retracements on the weekly. This can go either way.

Upcoming White House analysis on GSEs to recommend a variety of solutions - financial press

- Could include suggestions for the Govt to guarantee mortgages but private investors would take a loss first; Govt would provide guarantees in event of crisis only
- May suggest the FHA remain as the only provider for guaranteed mortgage
- Suggests Fannie and Freddie ultimately be wound down

- Reminder: The formal White Paper is due tomorrow

I joined the happy meal @19.02.

:)

See attached chart ... anyone else notice a pattern here? It doesn't usually bottom for 2 or 3 weeks afterwards.

jack- I would agree with all three. I don't use hard stops, preferring mental stops instead, and you could say I rely on my sixth sense. However, when the time comes, I do not hesitate to sell.

I actually had a small gain on the 'all-in' CSCO position taken last Friday (around 21.92): I exited Wednesday at an average of 21.97. However, I don't plan on any 'all-in' positions again. And I am most definitely aware I am one fortunate son-of-a-gun.

OK this is what I put in wikipedia on Bernanke:

"Despite recent denials from Bernanke, his quantitative easing (QE) policy may be responsible for the dramatic inflation in food and energy prices, partially responsible for social unrest in African and Middle East countries. The timing of QE1 and QE2 coincided with massive speculative positions in crude oil futures. Oil Speculation Far Exceeds the Levels Reached in 2008 (2011-2-8) [http://realitylenses.blogspot.com/2011/02/oil-speculation-far-exceeds-levels.html ] Similar correlation exists with corn futures speculation and other food futures. The concern is that a sea of liquidity unleashed by the Federal Reserve is tunneled into destructive speculation rather than real improvement of US economy."

The comment was removed within minutes (twice). The wiki vigilantes make me sick. This why I will never contribute money to Wiki.

BTW, why this obsession with CSCO on this forum? This is consistently making lower lows and lower highs for months during a super bull market. Why should this be played long and not short? Beats me.

I'm wondering what Cody Willard is emailing his clients- oh, here we go:

http://blogs.marketwatch.com/cody/2011/02/10/cody-...

Jack -

One thought. Try posting your comment once each hour after 6pm ET - through 6am ET. It would be interesting to see if there is a window of time when such posts aren't removed within minutes. Perhaps there's a Fed employee whose job it is to sanitize the Wiki of entries critical of the Fed, and we can figure out when he works.

That in and of itself is interesting information.

It would be interesting to see who it was that removed your contribution.

Three reasons why he will not per The Christian Science Monitor.

http://www.csmonitor.com/USA/Politics/The-Vote/201...

Also, the 31 Jan 2011 issue has a good article titled, Housing: Where's the market headed?, by Mark Trumball. It has a real nice chart, what it costs to buy a home in 20 top ranked cities. Sorry cannot find a link.

jack black,
Try again. This time be sure to attribute the dramatic rise in food & energy costs to the real reasons: weather related droughts & simultaneous floods plus increased demand for energy by growth economies(emerging markets). I doubt anyone would delete it. Any reference to the QE program as the root cause of inflation is simply erroneous and merely coincidental and is sure to be censured. Come on man, get with the program (LOL).

Ilya, I really enjoy reading what you post - very interesting views for sure. I come from under a rock - I mean I really never had time to cultivate myself to a level of knowing or understanding what some people discuss here and never heard of a mentor until I read about one, or concepts like ‘you have to have long legs to walk among the mountains… - I like what Donald says; he has the microphone… But we all know what people say and do are two different things when running for public office. If he’s unworthy then hopefully that would be flushed out from people such as yourself. It’s this bad, at least he’s American… maybe we should get back to the duel – I mean at the highest levels of society where one disagrees with the other they should be able to resolve differences definitely. I’d like to see that.

I know his views on China and the 25% tax is truly a ‘stupid’ idea. At least his grandmother is not saying “he was born over here…” And I’m not a birther either – too late to care about that one. From where we are now I think if we could get someone breathing to run for office we’d be far better off, also they should not be part of the Council on Foreign Relations like Dick Chaney, Clintons, Bushes, Newt Gingrich and all the other pseudo Americans. Americans – now that’s a cloudy subject…

I found this interesting interview with Richard Dreyfuss

Richard Dreyfuss Apologizes at CPAC and Waxes Eloquent on Civics, Education and the Bill of Rights" was interesting and hope you do too.

http://www.pjtv.com/v/4888

Hi Dave;
I pulled up a 5 yr weekly chart and it's looking like 85 is your support area and with the approach it's looking like it could first bottom in the 82/83 area before returning to 85 support. This is like 5 to 6 billion dollars a week leaving TLT - has to be going somewhere. http://stockcharts.com/h-sc/ui?s=TLT&p=W&yr=5&mn=0...

regards,
Earl

It was pre-planned per WSJ. http://online.wsj.com/article/SB100014240527487041...

Earl,

Dreyfuss may be right in his labeling of Hollywood political leanings, but...

If pressed I could come up with only one or two, living and dead, who I would class as conservative — AND JOHN WAYNE DIED IN THE LATE 1970s.

Therefore, I suspect the liberals are far more vocal and/or the "liberal" media give them far more time.

Either way, I am not swayed by someone who is accustomed to speaking "a part" since it puts them in the same class as a politician. (Some of whom qualify better for an Oscar than a Nobel prize.)

i see Trump talking tough here but he has two policy options in my mind to get America back on its feet. Unilaterally close US markets to Chinese products as an inducement to comprehensive global trade and currency negotiations or as an outright rejection of free trade. I hope its a precursor to something more substantial in reform.

That was the entirety of the interview? Sounded more like a campaign slogan. "China's the enemy!" Let's hear something more substantial about policy.